Spar last to enter delivery race
Rivals have head start in booming business fuelled by pandemic
Competition in the grocery delivery market is intensifying, with Spar, the last listed grocery retailer to offer the service, announcing this week that it is rolling out its e-commerce platform in the northern suburbs of Johannesburg from March.
Although still in its infancy, the grocery delivery business gained strong momentum at the height of the lockdowns, which discouraged visits to shopping centres.
Pick n Pay, Woolworths and Checkers ramped up their online stores to enable people to shop on their websites or via cellphone apps to get goods delivered to their doorsteps.
Spar said in a trading statement for the 18 weeks to January 29 that its Spar2U delivery platform would be available in a group of stores by the end of March.
“Interest levels from Spar retailers to utilise the new platform remain high and this will enhance the group’s ability to assist retailers in driving improved consumer service and engagement,” it said.
The company declined to comment further on its plans.
The JSE-listed Spar Group is a warehousing and distribution business that provides merchandise to independent retailers who trade under its brands, including Tops liquor stores and Build It hardware stores. It has operations in other African countries, and in parts of Europe and Asia.
Analysts said although Spar has entered the market late, the industry is still growing.
Chris Gilmour, an investment analyst with Salmour Research, said Spar has had an online facility for some time but kept it low key. Delivery services rarely make money unless they have a big market share and can be run very efficiently.
“I suspect Spar is doing this more as a ‘me too’ rather than as a well-thought-out strategic innovation,” he said.
Mohamed Mitha, an investment analyst for Kagiso Asset Management, said Spar is playing catch-up against rivals such as Checkers, which leads the market with its Sixty60 delivery service.
But he added: “We wouldn’t say it’s too late for Spar to enter this market as grocery delivery is still in its infancy in South Africa and there is still time as the market continues to grow and mature.”
Chris Reddy, fund manager at All Weather Capital, said Spar has lost some ground but “consumer trends are moving towards convenience, so e-commerce will be a driver going forward. While still a small percentages of total sales, the growth rate is high if we look at the take-up of Shoprite’s Sixty60, which has been a phenomenal success.”
Checkers’ Sixty60 platform is the gold standard for now — quick deliveries, sufficient stock and a simple app, said Reddy.
Mitha said Spar might find it more difficult to implement a delivery service than its rivals have.
“This is due to the unique aspects of their business model. Unlike their competitors, almost all Spar’s stores in South Africa are owned by independent franchisees, rather than being mostly corporate owned.
“Each franchisee that decides to opt in to the grocery delivery service will have a vital role to play in ensuring that the model works, and with hundreds of different franchisees, the customer experience could differ vastly when comparing the service levels from one area to another,” said Mitha.
Having this extra role player in the delivery chain “introduces another level of complexity to a service that is already complicated to run”, he said.
With many countries lifting Covid restrictions and employees returning to work, players in the food delivery sector in countries such as the US fear demand for their service might ease.
Gilmour said, however, that people have become used to food delivery and this will provide a foundation for the sector to grow much larger.
He expects Spar’s large stores to do well with the delivery service but the small, neighbourhood stores might struggle.
Spar said total sales for the 18 weeks to January 29 in Southern Africa increased 8.2% year on year, primarily driven by abnormally high growth in liquor sales.
In the core Spar grocery wholesale business, sales rose 3.7% during a period when grocery retail showed signs of returning to pre-Covid “normality” and retailers competed aggressively for their share of a constrained consumer market, it said.
Reddy said the trading update, which showed sales growth had lagged the inflation rate of 4.4%, pointed to volume declines.
Shoprite reported a 9% increase in sales for its South African supermarkets, excluding liquor, for the six months to January 2.
Mitha said a notable threat facing Spar in SA was Checkers’ entry into the convenience market under the “Checkers Foods” banner. “Spar stores are often located close to customers’ homes and the new, smaller format stores by Checkers look to compete in this space as well,” he said.
With hundreds of different franchisees, the customer experience could differ vastly when comparing the service levels from one area to another Mohamed Mitha
Kagiso Asset Management